RSA grant with 83(b) then repurchased by company, capital loss?

[dave4447]

I previously received a RSA stock grant from my employer and filed a timely 83(b) to accelerate the taxation of that grant into the granting year.

I paid $0 for the grant and recognized the $YYY fair-market value in that year as regular income.

Unfortunatly, I left that company before the grant was fully vested.  25% was vested and I still own that, however the remaining 75% was repurchased by the company for $0 when I left.

How do I report the remaining 75%? This seems like a capitial loss since the basis at FMV was declared due to the 83(b) when granted then the company purchased it from me for $0.

In summary, that 75% was:
* I paid $0 out of pocket
* It had a fair-market value of $XXX due to 83(b) at time of grant
* That $XXX was included in regular income and becomes the basis for any future sale
* It was then repurchased by the company for $0
* Capital Loss: basis = $XXX, proceeds = $0, gain = $-XXX

Can this repurchased unvested portion be counted as a capital loss?

Because no 1099-B was involved, do I need to provide any supporting information? I could see how this would look unusual.

[GeorgeM777]

Probably, although it is a little unclear when you stated that the repurchased shares were the "unvested portion" of the RSA granted to you.  However, given that you included the fair market value of the grant in your compensation, then using the fair market value as your basis seems reasonable.   When you say that you paid "$0 out of pocket," it does appear that the grant was not really cost-free to you because the amount was included in your compensation and thus was subject to tax, and in regard to the tax issue, you appear to have timely made an 83(b) election.  Thus, given that the FMV of the stock was included in your compensation at the time the grant was given to you, it appears reasonable to use the FMV when determining the extent of your capital loss.

It is recommended that you keep every record/document that supports your calculations.  For example, keep a record of your paystubs, and other compensation records, for the period when the grant was included in your compensation, and further keep whatever records you have regarding your 83(b) election.   You might also want to maintain whatever documents you can find from the company that describe their forms of compensation especially with regard to stock grants of the type you received.   

@dave4447

[dave4447]

Thanks George,

Yes, there was no cash involved, purchased for $0, repurchased for $0.

In summary: $0 to FMV as regular income and then FMV back to $0 as capital loss.

The "unvested portion" was the 75% that was repurchased (because it hadn't vested at the time).

[GeorgeM777]

Thank you for the follow-up.  Your approach to handling this transaction appears reasonable.  

@dave4447

[luludeyang]

Hi George, your response is very helpful as I also have a similar situation. However, my case is more complicated.

The former employer (a private Inc. company) repurchased unvested ISO and NSO shares at the exercise price ($4/share) at the time of service termination, and the repurchase was made WITHIN ONE YEAR of the exercise of ISO and NSO shares.  

For the ISO portion of the repurchase, the cost basis ($4/share) and proceeds for ISOs ($4/share) are the same, i.e., 0 gain from the repurchase.  As it's repurchased within 1 year of early exercise, will the short sale affect the tax benefits of ISOs and lead to tax return amendment for the year of exercise? 

For the NSO portion of the repurchase, I lost money as the proceeds ($4/share) was lower than the cost basis (FMV price, $9/share). 

Do you think it's OK to just claim the loss from the NSO portion of the repurchase as a capital loss?

[GeorgeM777]

Regarding the repurchases of the ISO and the NSO, I assume both repurchases occurred in 2021, and therefore, you should report both on your 2021 return.  Generally, if the ISO or NSO shares remain unvested, upon repurchase a company will pay the original purchase price.  A company will pay fair market value for shares that have vested.  

Regarding the ISO repurchase, what benefit did you receive, if any, when you exercised the option to purchase shares?  For the NSO, it appears those must have vested with you as the company repurchased at the current market price which was lower than your cost basis.  So for the NSO repurchase, you can claim a capital loss from the repurchase.  

@luludeyang

[luludeyang]

Thank you George for your response!  

The company repurchased unvested ISO/NSOs using the exercise price, not the FMV.  That's why for NSO, we lost the NSO income from the unvested shares in the year of early exercise.    

[luludeyang]

The ISOs were early exercised in 2019, which triggered AMT that year.  We didn't gain anything from the ISO repurchase of the unvested shares.  

[GeorgeM777]

Thank you for that additional information.  In terms of amending a prior return, if the ISO was re-purchased in 2021, then there is no need to amend your 2019 return.  Report the ISO re-purchase as you would any other ISO in which you exercised the ISO and then later sold the shares. You are correct in that because your cost basis and the re-purchase price are the same, you will not have a gain or loss.

The same would apply for the NQSO exercise and re-purchase.  Although here, it looks like you will have a capital loss.

To the extent you paid tax on the early exercise, you won't be able to get any of that money back.  That's one of the downsides to early exercise in that there are no refunds for prior tax payments.  

@luludeyang